Friday, September 19, 2008

Facing reality

A very appropriate introduction is the recent action by Captain Burrell to dismiss the once football saviour, Simoes, stating quite correctly that even though Simoes was a good person and a personal friend, he had a job to do and the fact is that he was not getting the expected performance.

When I heard this statement from the Captain, not really having any strong opinion on him before, my respect grew in leaps and bounds. I thought to myself this is a man who is a leader, who recognises what his responsibilities are and acts in an emotionless manner to achieve that purpose.

This is one of the central issues at the heart of Jamaica's failures, because instead of confronting issues head on, and making decisions based on objectives, we are more apt to make political or emotional decisions, and instead of holding people accountable we would rather cover up their inefficiency by creating a new position or additional structure. And this is not only in the public sector. The result is a structure of inefficiency and unproductivity, while we wonder why we are uncompetitive.

Courage to lead
Hats off to the Captain who has shown that he has the courage to lead. If that attitude continues in the JFF then I have no doubt we will return to the glory days of football, when he was also at the helm in 1998.

This courage to lead is also going to be critical in the next 6 to 9 months, as the global financial crisis seems worse than I, and many, had anticipated. On July 18th 2008 I wrote about the makings of a perfect economic storm unfolding over the next 6 to 9 months because of our fractured economic structure, built over the years, combining with the global crisis. At that time I didn't realise how difficult the global crisis would get. Our broken economy has resulted, to a large extent, because our leaders have not had the courage to lead, and instead of putting performers in place have supported friends and political appointees, even in the face of their non-performance. Another reason is that over the years we have always sought to solve a problem by bringing in a foreigner, ignoring the development and expertise of our own Jamaicans, thus exporting capital, and ensuring that the "slaves" never get to a position higher than foreman, satisfying their need for crumbs with "memorandums of understanding". But when the foreigners leave, the expertise leaves with them, and they have little obligation to Jamaica's development.

Recently again (happened in the past) people have sent me emails, and some have said that instead of talking about economic gloom I should think positively. As far as I am concerned, the only place that type of argument belongs is in the warehouse of the NSWMA. How does positive thinking replace reality? Maybe what Captain Burrell should have done was think positively in the hope that Jesus would save us from elimination in the qualifiers. Maybe what the directors of Lehman Brothers should have done was think positively that investors would stop dumping their shares, and on Monday everything would have been alright.

I think some of us have taken the power of positive thinking theory too far. Maybe because I am an accountant I was taught to be cautious and conservative, but the only way to truly deal with a problem is not to think it away but to first and foremost face the reality. If we fail to face the reality, then we will think that the light at the end of the tunnel is daylight and before we realise it we'll be run over by a freight train, instead of understanding that it was a train coming and step off the tracks.

But I have no confidence that those with this philosophy will change any time soon, while I and other pessimistic thinkers will continue to be seen as the prophets of doom. But as long as I am proved to be right, then I have no problem with that label.

Global turmoil
I don't think I have to mention the implications of the global financial crisis. It is very bad in my view, certainly the worst financial crisis since 1929 and has the potential to be geometrically worse than the Great Depression, simply because financial and economic systems are so intertwined in today's global environment that a failure in one market will inevitably cause significant harm in others.

We have seen where the US market has seen the fallout of giants such as Bear Stearns, Merrill Lynch, Lehman Brothers, AIG, and Washington Mutual. In addition the UK has seen its share in Northern Rock and now the acquisition of HBOS by Lloyds TSB. I have no doubt that other financial institutions on other continents will be affected. As a matter of fact, there is a fear now that Asian banks may soon be affected. These situations no doubt will lead to a global recession. Already Europe, UK, and the US are in a recession, and we are seeing a slowing down in other markets such as Canada, Australia, Japan etc. Jobless claims and unemployment are rising worldwide, with the US recording multi year high unemployment of over 6% and the UK recording unemployment of 5.5%. In the meantime, housing starts and mortgage applications are down worldwide (US, Canada, UK, and Australia).

As if that pressure is not enough we also see where inflation was still a global concern. When oil was going down recently I wrote that it was not time to celebrate as oil is still in a long-term up trend, and only yesterday oil bounced back from the strong technical support level of $90 to over $99 at the time of writing. Two days ago gold also had its biggest one-day increase. These moves are just a symptom of the credit crisis, as investors, fearing that money and companies will lose their value, flee to commodities that can retain the value of their investment. This will of course play out more in gold as it is a better way to retain value than other commodities such as oil. For an oil price downturn to be maintained then it will have to close below $90 per barrel, and even then it may not be sustained.

What is clear is that this "accounting" crisis will more than likely continue for a while. This problem started because of weak accounting rules, and has turned into a true global problem. The accounting issue still remains, as companies are still not able to say what the true value of the compromised assets are. In fact Fannie Mae and Freddie Mac admitted that the accounting for their assets was overstated, and even AIG's fall was caused because when Lehman wrote down similar assets significantly AIG's balance sheet became a problem. The only company in March 2008 which said it always marks its securities to market, Goldman Sachs, is the most resilient. Even so Goldman is seeking fresh capital from the Chinese in order to avoid any pounding from short sellers.

It is clear that the global crisis will negatively affect Jamaica's economy, as it will at best slow down the growth in tourism and remittances. There will also be a slowdown in construction, with the only possible saviour being agriculture, as we grow foods for export and more importantly to feed our people, as food security is going to be very important. In any event growth this and next year is going to be restricted, and economic defensive strategies must be adopted.

Technically also a recession is defined as two consecutive quarters of negative growth, and already we have had one. If there is another, then we would technically be in a recession. And there is nothing wrong with saying that, as it is the reality, and we must face if we are to deal with the challenge, as Captain Burrell did.


Jean Lowrie-Chin said...

The high-living fat cats of Wall Street ride off into the sunset and the average American who literally lives two paychecks away from poverty pays for their dereliction of duty... I agree that Jamaica will feel the effects ... please spell it out next week Dennis ... too many people have their heads in the sand

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